Question

Rhea Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 67 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 10 Direct labor $ 5 Variable manufacturing overhead $ 3 Fixed manufacturing overhead per year $ 252,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 65,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 9,000 7,000 Units sold during the year 8,000 7,000 Units in ending inventory 1,000 1,000 The net operating income (loss) under absorption costing in Year 2 is closest to:

Answer 1

Answer:

$6,000

Explanation:

As per the data given in the question,

Sales revenue $469,000            (7,000 × $67)

Less:

Cost of goods sold:

Direct materials $70,000 (7,000 × $10)

Direct labor $35,000 (7,000 × $5)

Variable MFG overhead $21,000 (7,000 × $3)

Fixed MFG overhead $244,000    ($252,000÷9,000×1,000)+($252,000÷9,000×6,000)

Cost of goods sold $370,000

Gross Profit $99,000

Selling and

administrative expense $93,000 ($65,000+7,000×4)

Net operating income(/Loss)   $6,000 ($99,000-$93,000)

We simply deduct all expenses from the sales so that the net operating income could come